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The
background: The Business Today Banks Scoreboard (2001-02)
was compiled by Business Today on the basis of a methodology
and calculations vetted by audit and consultancy firm kpmg. The
kpmg team was led by Atul Pradhan, Managing Director.
The Data: The data for the study was based
on the published balance sheets of banks. All the figures used were
for the year ended March 31, 2002.
The Universe: The ranking covers 79 scheduled
commercial banks out of the 97 scheduled commercial banks that had
submitted their balance sheets for the financial year ended March
31, 2002, at the time of conducting the study. The annual reports
of the following banks were not available:
 Public
sector banks (2), namely, Indian Bank and State Bank of Patiala
Private banks
(8), namely Centurion Bank, IndusInd Bank, Bank of Punjab, Sangli
Bank, Ganesh Bank of Kuruwad, Nedungadi Bank, SBI Commercial International
Bank, Ratnakar Bank
Foreign banks
(6), namely Oman International Bank, Chinatrust Commercial Bank,
Sonali Bank, JP Morgan Chase, Siam Commercial Bank and Morgan Guarantee
Trust Company
In addition to the above, Dresdner Bank and Commerz Bank have been
excluded from the study due to the closure of their Indian operations.
The other changes in the study include the following banks that
have been renamed or merged, thus reducing the number of banks considered:
Sumitomo Bank and Sakura Bank merged to form Sumitomo Mitsui Banking
Corporation (SMBC)
Sanwa Bank renamed OUFJ Bank.
Fuji bank renamed Mizoho Corporate Bank.
The Changes
To provide an overview, with emphasis on the quality of earnings,
operations and the asset book, the BT-KPMG study reorganised some
of the analysis parameters used in the previous edition of the scoreboard.
The evaluation parameters/ratios are classified into six key categories:
Size
Operations
Earnings quality
Productivity
Capital adequacy
Asset quality
The distribution of weights to the above has
changed to provide more emphasis on operations, asset and earnings
quality, with a reduced importance on some of the measures used
in the previous edition.
Based on the changes and emerging trends, three new parameters/ratios
have been included to assess operational efficiency of the banks.
The ratio of incremental low cost of deposits to incremental deposits
has been included as the ability to lower cost of deposits by attracting
low-cost deposits is gaining importance.
Also included is the ratio of fee income to total income as the
banks are focusing on augmenting fee income. With traditional sources
of other income-commission and brokerage-likely to decline in the
coming years, the banks' ability to find alternate revenue streams
will gain importance. A new ratio to measure Asset Liability Management
(ALM) mismatch has been added. This measure checks whether the ALM
mismatch falls within 15 per cent (as against 20 per cent proposed
by the RBI) for first two time periods.
The BT-KPMG study has replaced cost of deposits with cost of funds
as some banks tend to use the money market to source funds and the
new ratio will redress that situation. As against the previous edition,
the ratio of interest income to average working funds was omitted
from the operations category.
In the earnings quality category, we have omitted the ratio of net
profit to net worth and introduced a new ratio that relates provisions
to operational profits.
In the productivity category, the focus of the study considered
operating profit instead of net profit.
In the asset quality category, we have considered two new parameters,
namely Non Performing Asset (NPA) growth rate and NPA coverage.
These are included on the assumption being that the fresh NPAs primarily
come out of the bank's clean book of the previous year and that
the percentage of incremental advances going bad is minimal. The
earlier parameter of absolute NPA as a parameter has been omitted.
We have grouped banks differently this year. In comparison to the
earlier separate ranking for single branch operations, we have ranked
separately banks with five or less branches to provide a comparable
pool of banks in terms of point of presence and business volumes.
Thus, there is one set of rankings for 53 banks and one for the
26 five or less branch banks.
The ranking: The composite
rank for each bank was arrived at by combining its ranks on each
of the 21 parameters, using a weight for each parameter.
The computation: To compute a bank's total
score, it was assigned a score for each of the 21 parameters, based
on its ranks on the parameter. For each parameter, a rank of 1 earned
a score of 53, a rank of 2 earned a score of 52 and so on, down
to the rank of 53, which earned a score of 1. For instance, since
the ABN Amro Bank's rank under the net profit parameter was 26,
it earned a score of 28 on that parameter.
The score under each parameter was then multiplied by the weightage
assigned to that parameter. Thus the ABN Amro Bank's score of 28
under net profit was multiplied by 5-the assigned weightage-to arrive
at a score of 140. The results were aggregated to compute each bank's
total score, on the basis of which the final ranks were assigned.
How To Read The Scoreboard
The composite rank of a bank was calculated using BT-KPMG's methodology.
The performance of each bank in 2001-02 on each of the 21 parameters
has also been presented.
Size
Deposits: Total
deposits as on March 31, 2002. Weightage: 5 per cent
Average working
funds (AWF): Total liabilities of the bank averaged over 2000-01
and 2001-02. Weightage: 5 per cent
Net profit: Net
profit for the year 2001-02. Weightage: 5 per cent
Operations
Net
interest income/AWF: Interest earnings expressed as a percentage
of AWF. Weightage: 5 per cent
Incremental low-cost
deposits/incremental deposits: Incremental savings and current deposits
from public expressed as a percentage of increase in total deposits.
Weightage: 5 per cent Cost to income ratio: Operating expenditure
expressed as a percentage of operating income, which is net interest
income plus other income. Weightage: 5 per cent
Cost
of average interest bearing funds: The interest expended as a percentage
of average interest bearing liabilities (deposits plus borrowings).
Weightage: 5 per cent
Asset-Liability
Management (ALM) score: ALM mismatch within 15 per cent for the
first two time periods. If the mismatch is within good practice
norms, bank gets 5. If it falls within the norm in one period then
2.5 or else zero. Weightage: 5 per cent
Fee income/total
income: Fee income includes commission, exchange brokerage, plus
profit on exchange and other income, expressed as a percentage of
total income. Weightage: 5 per cent
Earnings quality
Interest spread/AWF:
The difference between the interest earned by the bank and the interest
paid by it, adjusted by provisions as applicable, expressed as a
percentage of the AWF. Weightage: 5 per cent
Operating profits/AWF:
The different between operating income and operating expenses, as
expressed as a percentage of the AWF. Weightage: 5 per cent
Return on average
assets: The ratio of net profit to average total assets. Weightage:
5 per cent
Provisions/Operating
profits: The ratio of provisions for the year expressed as a percentage
of operating profits. Weightage: 5 per cent
Productivity
Business/Branch:
Advances plus deposits as on March 31, 2002, divided by the number
of branches in the country. Weightage: 5 per cent
Operating profits/employee:
Operating profits divided by the total number of employees. Weightage:
2.5 per cent
Operating profits/branch:
Operating profits divided by the total number of branches. Weightage:
2.5 per cent
Capital Adequacy
Capital Adequacy:
The capital-to-risk weighted assets ratio, as submitted to the RBI
for 2001-02. Weightage: 7.5 per cent
Tier I capital:
The ratio of equity and statutory reserves to risk-weighted assets
as submitted to the RBI for 2001-02. Weightage: 2.5 per cent
Asset Quality
Net non-performing
assets/net advances: The sum of sub-standard and lost loans net
of loss provisions, expressed as a percentage of net advances. Weightage:
5 per cent
Non-performing
assets growth rate: The incremental gross NPAs expressed as a percentage
of gross advances for the previous year minus gross NPAs for the
previous year. Weightage: 5 per cent
Loan loss cover:
The provisions for NPA expressed as a percentage of NPA. Weightage:
5 per cent.
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